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TMI Blog2016 (1) TMI 246X X X X Extracts X X X X X X X X Extracts X X X X ..... he year 2000 itself but waited for 4 years before writing off the loss in the year 2004-05. We are of the view in the given facts and circumstances of the case, the deduction claimed ought to have been allowed. - Decided in favour of assessee Addition on excess provision - CIT(A) deleted the addition - Held that:- Law is well settled that under the mercantile system of accounting it is only expenditure which has accrued to the Assessee during the previous year that can be allowed as a deduction. Originally the bill discounting charges were estimated at ₹ 90,39,137. On this basis the Assessee was justified in considering the expenditure on account of bill discounting charges at ₹ 90,39,137. However during the previous year relevant to AY 04-05 i.e., on 22.10.2003, it turned out that the actual liability towards bill discounting charges was only ₹ 10,29,375. Therefore in its books of accounts for the previous year, the Assessee ought to have reversed the excess provision for liability made. In other words the actual liability at ₹ 80,09,822 crystalized during the previous year relevant to AY 04-05 itself and the Assessee therefore could not have claimed ove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and in the circumstances of the case, the learned CIT(Appeals) erred in confirming the action of the Assessing Officer in disallowing the claim of the appellant for deduction of a sum of ₹ 4,15,63,688 representing Bad Advances written off in its profit loss A/c for the year under appeal. 2. That on the facts and in the circumstances of the case, the learned CIT(A) erred in upholding the action of the Assessing Officer in disallowing the appellant s claim for deduction of a sum of ₹ 2,73,866 being bad Other Current Assets written off in its profit loss A/c for the year under consideration. 3. That on the facts and in the circumstances of the case, the learned CIT(Appeals) erred in not appreciating that the aforesaid amounts of ₹ 4,15,63,688 and ₹ 2,73,866 written off in its Profit Loss A/c represent trading loss incurred by the appellant in the course of carrying on its business and are thus deductible under section 28 of the Income-tax Act, 1961 while computing its total income for the subject year. 4. That the appellant craves leave to add to and/or amend, alter, modify or rescind the grounds hereinabove before or at the hearing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of ₹ 41,837,554/- from the provision made earlier netted against fresh provisions during the year in the accounts). It was submitted that such write off of amounts towards bad advances and bad other current assets, as mentioned above, was a loss directly connected with the business operations is incidental to the carrying on of the business by the assessee. Accordingly, it was submitted that such loss aggregating to ₹ 41,837,554/- was legally to be treated as a part of the trading loss and is deductible as such under the provisions of Section 28 of the Income Tax Act in arriving at the true profits. 4. The AO did not dispute the fact that the loss in question was directly connected with the business operations and incidental to the carrying on of the business of the Assessee. According to him such losses could be allowed only when the amounts written off as loss have become irrecoverable. He was of the view that the Assessee had written off these losses in the books of accounts only for the reason of lack of information and non-availability of old records and therefore the loss in question cannot be allowed. He was of the view that the loss in question had occ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pense purchases, suspense-staff travel etc. As far as the sum of ₹ 2,73,866 written off is concerned, the same was security deposits for electricity, telephone connection and others. The Assessee switched over in the year 1998 to new SAP System and these deposits were for period prior to 1998 which were omitted to be updated. Hence, the Assessee could not claim these deposits. 8. The learned counsel for the Assessee has also submitted before us in the course of hearing that the Ghatkopar unit of the Assessee was sold during the previous year due to several problems including labour problems and the advances and expenses written off related to this unit and this unit remained closed for a long time prior to its closure. We are satisfied that on the facts as pleaded by the Assessee before the AO which were not controverted by the AO/CIT(A), the loss in question was incidental to the business of the Assessee. The reason assigned by the AO was that there was negligence on the part of the Assessee in not keeping proper records and this fact influenced his decision in not allowing the claim of the Assessee. In our view once the fact that the loss is incidental to Assessee s busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounting charges during the relevant year ended 31/3/2004, which was claimed by the Assessee as an allowable expenditure u/s 37(1) of the Income tax Act. In due course, the discounting was carried out with Citi Bank NA on 22/10/2003 and an amount of ₹ 8,009,822 was actually incurred towards discounting charges. Thus, an amount of ₹ 1,029,375/- (Rs.9,039,197/- minus ₹ 8,009,822) being in excess of the liability actually incurred towards discounting charges of the receivables and no longer required, was written back credited in the books of accounts during the subsequent financial year ended 31/3/2005 by adjusting/netting with General Charges A/c , thus in effect offering to tax the amount of ₹ 1,029,375/- in the subsequent financial year. 12. On the above facts, the question before the AO was as to whether the sum of ₹ 10,29,375 which was excess liability claimed in the present Assessment year can be allowed as a deduction. The AO was of the view that the amount of ₹ 10,29,375 was not a liability of the Assessee during the previous year relevant to AY 04-05 and therefore ought not to have been claimed as a deduction in AY 04-05. The discount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction in computing its income from business. It is a different issue that the Assessee offered to tax the sum of ₹ 10,29,375 in AY 05-06. We therefore restore the order of the AO in this regard. We however direct that the sum of ₹ 10,29,375 should be excluded from the taxable income of AY 05- 06, as not doing so would amount to double taxation of same income, which is impermissible in law. We hold and direct accordingly and allow ground no.1 raised by the Revenue. 15. As far as ground no.2 raised by the revenue is concerned, the same reads as follows: 2. That on the facts and circumstances of the case, Ld. CIT(A) erred in directing not to consider the sale of property at Ghatkopar as a slum sale u/s 50B without appreciating the facts. 16. The facts relevant for decision on ground no.2 are the Assessee had a factory at Ghatkopar which was situated at Lal Bahadur Shastri Marg, Ghatkopar, Greater Mumbai. This was closed down on 1/4/1999. There was no ongoing business activity the factory was not in operation. Subsequently the Assessee decided to sell the Ghatkopar land to Kalpataru Homes Ltd and entered into an Agreement for Development dated 31st October ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B(2) of the Act. The definition of slum sale is given in Sec.2(42C) of the Act and the method of computation of capital gain on slump sale is given in Sec.50B of the Act. Those provisions read thus: Sec.2 (42C) slump sale means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales. Explanation 1 : For the purposes of this clause, undertaking shall have the meaning assigned to it in Explanation 1 to clause (19AA). Explanation 2 : For the removal of doubts, it is hereby declared that the determination of the value of an asset or liability for the sole purpose of payment of stamp duty, registration fees or other similar taxes or fees shall not be regarded as assignment of values to individual assets or liabilities. 50B: Special provision for computation of capital gains in case of slump sale. (1) Any profits or gains arising from the slump sale effected in the previous year shall be chargeable to income-tax as capital gains arising from the transfer of long-term capital assets and shall be deemed to be the income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s follows: I have gone through the rival contentions. The basic test which one must apply to ascertain whether there existed a slump sale or not is the continuity of business. The question to be asked is whether there was transfer of business as a whole. Whether there was a transfer of land, building, plant and machinery as a whole or whether there was a transfer of land, building or plant and machinery separately and individually? For that purpose, one has to read the terms and conditions of the entire arrangement and understand ascertain the true intention of the parties. I have gone through the facts and submissions made by the appellant thoroughly. On perusal of the Agreement it is clear that only sale of land is covered with irrevocable rights and marketable title to the developers. It is also evident on review of the documents submitted by the appellant, that the old scrapped junked items of plant machinery, furniture fixtures and stores items of the erstwhile Ghatkopar unit were sold to a third party and not to Kalpataru Homes Limited. Accordingly, the consideration of ₹ 30,50,00,000 does not include amount of ₹ 54,80,769/- received from M/s. Asia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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